Nearing End of Litigation, MP3.com will offer Music Marketing Services

Music lovers who availed themselves of MP3.com's uploading-archiving-and-accessing services are about to become the next target market for the music industry. Nearing the end of protracted litigation brought against it by the music industry's "Big Five," the online music venture has announced a marketing service that will promote new commercial recordings directly to its users through e-mails. The recordings will be on labels under the control of MP3.com's opponents in the year-long copyright wrangle.

The first sample to go out to MP3.com users will be "Free," a song by the rock band Vast, on Time Warner Inc.'s Elektra Entertainment label, and will be followed shortly thereafter by a flurry of recordings on other labels. The marketing campaign is a sea change for San Diego–based MP3.com, whose chief, Michael Robertson, was outspoken about the rights of music lovers to access their libraries from any Internet-connected computer. "MP3.com is providing an integral service to the label," said Sylvia Rhone, chairman and chief executive of Elektra. "It creates access to an important new audience that we have to reach, if we want to be aggressive in marketing our artists."

The venture is also a sea change for the music industry, which has a long history of opposing any new technology that might make it easier for consumers to copy recordings. Four of the plaintiffs in the case against MP3.com have settled for smaller damages than they might have eventually won, and have entered agreements with the company to use it as a promotional channel. The four—EMI Group PLC, Time Warner Music Group, BMG, and Sony Music Entertainment—settled for approximately $20 million each; MP3.com took a $150 million write-off to cover the costs. A settlement with Universal Music is expected the first week in September.

MP3.com allowed users to upload their CDs to the company's server computers so that they could then listen to them over the Internet, and in the process built a user network of hundreds of thousands of music-lovers. The music industry has wisely decided that the user network is too valuable a resource to waste.

Not all MP3.com users will receive the promotional pitches, only those who had elected to receive MP3.com e-mails. The first sample will go out to approximately 500,000 people in the major markets of New York, Los Angeles, San Francisco, and Chicago. Recipients will receive the song as an attached file, and will be able to play it and forward it to their friends.

Curiously, on August 27, three days before MP3.com announced the new marketing service, pop singer Alanis Morissette filed a "Form 144" with the US Securities and Exchange commission, a formality that may allow her to proceed with her sale of 129,328 shares of common stock in MP3.com. The stock closed at $8.50/share on Friday, September 1, far below its 52-week high of $64.65 on November 8, 1999.